Bressler Risk Blog

“Take Your Clients at Their Word…At Your Own Risk” —

• “The ABA amended Model Rule 1.16 in 2023, requiring lawyers to actively assess whether a client intends to use legal services for fraud or crime, imposing a duty to investigate suspicious circumstances before and during representation.”
• “Lawyers can face disciplinary action and civil liability for failing to detect or respond to client misconduct, even if they lacked actual knowledge but were negligent or willfully blind to red flags.”
• “Lawyers should evaluate client identity, service nature, jurisdictions involved, and financial flows to assess risk and avoid inadvertently facilitating illegal activity.”
• “Picture this scenario. A client hires you to represent him as the purchaser in a real estate transaction. At the initial consultation, he is insistent that you act as escrow agent. You are surprised when the wire for the transaction comes in from a Russian bank. Your client assures you that everything is on the up and up. The deal closes and everyone walks away happy. Six months later, you get a call from an investigator from the Attorney General’s Office asking you about your client’s involvement in the transaction. It turns out the entire transaction was a scheme to launder money.”
• “This is just one of the ways that unscrupulous clients can take advantage of lawyers’ services for illegal schemes. As regulated professionals, lawyers must be on guard as they are subject to both civil liability and disciplinary consequences. These two enforcement frameworks have apparently different standards when it comes to an attorney’s obligation to investigate its client for fraud, although these two standards are shifting closer together with time.”
• “The American Bar Association’s Model Rules of Professional Conduct have long provided guidance to state supreme courts and legal regulators as they develop lawyer regulation and state rules of professional conduct. While some have argued that the ABA Model Rules were long silent on whether lawyers had an affirmative duty to investigate their client to ensure that the lawyer’s services were not being utilized for illegal means, recent amendments to Model Rule 1.16 clarify a lawyer’s duty to do so.”
• “Traditionally, lawyers could act upon their client’s instructions without doubting their bona fides unless the lawyer had actual or constructive knowledge of the client’s illegal or fraudulent motives. See, e.g., Monroe H. Freedman, Personal Responsibility in a Professional System, 27 CATH. U. L. REV. 191, 200 (1978) (criticizing the practice of ‘assum[ing] the worst regarding the client’s desires’). As use of lawyers to further money laundering, terrorism financing, and other illegal conduct appears to have proliferated, or at least entered the mainstream consciousness, the legal profession has suggested stronger requirements for lawyers to root out such bad actors before they get roped into a criminal enterprise.”
• “In 2023, the American Bar Association amended Model Rule 1.16 (Declining or Terminating Representation) to highlight the responsibility of attorneys to monitor for clients’ nefarious motives. Prior to the change, Model Rule 1.16 listed several scenarios where a lawyer would be prohibited from representing a client, stating, ‘a lawyer shall not represent a client, or where representation has commenced, shall withdraw from the representation of a client if’ any of those factors are present. The factors enumerated were if ‘the representation will result in violation of the Rules of Professional Conduct or other law,’ ‘if the lawyer’s physical or mental condition materially impairs the lawyer’s ability to represent the client,’ or ‘the lawyer is discharged.’ This provision did not specifically address clients who seek to use lawyers’ services to further a crime or fraud.”
• “After the amendment in 2023, Model Rule 1.16(a) now states, ‘A lawyer shall inquire into and assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation.’ In addition to the scenarios listed in the old Rule where an attorney could not represent a client, the new Rule explicitly prohibits representation where ‘the client or prospective client seeks to use or persists in using the lawyer’s services to commit a crime or fraud, despite the lawyer’s discussion . . . regarding the limitations on the lawyer assisting with the proposed conduct.'”
• “As the official comments to the Rule explain, this Rule change ‘imposes an obligation on a lawyer to inquire into and assess the facts and circumstances of the representation before accepting it.’ Rule 1.16 [comment 1].”
• “Does this mean that you have to hire a private investigator any time you want to take on a new client? According to the official comments, no:”
• “The required level of a lawyer’s inquiry and assessment will vary for each client or prospective client, depending on the nature of the risk posed by each situation. Factors to be considered in determining the level of risk may include: (i) the identity of the client, such as whether the client is a natural person or an entity and, if an entity, the beneficial owners of that entity, (ii) the lawyer’s experience and familiarity with the client, (iii) the nature of the requested legal services, (iv) the relevant jurisdictions involved in the representation (for example, whether a jurisdiction is considered at high risk for money laundering or terrorist financing), and (v) the identities of those depositing into or receiving funds from the lawyer’s client trust account, or any other accounts in which client funds are held.”
• “As of now, Maryland, Massachusetts, North Dakota, Oregon, and Wyoming have adopted the Model or similar amendments. Jurisdictions in which proposals are under consideration are: Alaska, Arizona, DC, New York, and Washington. Even if a state has not adopted this rule, a state make take the position, as the ABA did prior to the rule change, that the duty to proactively, not reactively, avoid contributing to clients’ crimes and frauds, is implicit in the duties of the existing rules. See ABA Formal Ethics Opinion 491 (2020). For example, the Colorado Bar Association published an opinion in 2021 cautioning that a lawyer who is willfully blind, in other words, who ‘(1) subjectively believes that there is a high probability that a fact exists; and (2) takes deliberate actions to avoid learning that fact,’ would be deemed to have actual knowledge. Colorado Bar Association Formal Opinion 142 (2021) citing Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 769 (2011).Accordingly, ignoring ‘obvious indicators of the client’s intent to use the lawyer to facilitate a criminal or fraudulent act’ would probably be considered misconduct. See Colorado Bar Association Formal Opinion 142 (2021).”
  The Civil Liability Framework”

“Suspension for solicitor who acted on both sides of case” —

• “A solicitor whose firm acted for both sides in litigation over a debt, despite him being told of the obvious conflict, has been suspended for six months.”
• “The Solicitors Disciplinary Tribunal (SDT) heard that Satnam Singh Talwar did not respond either when a paralegal at his firm pointed out the Solicitors Regulation Authority (SRA) rules or when debt collection firm Equivo did the same in declining his instructions, telling him that he was ‘clearly conflicted’.”
• “The tribunal said the case ‘served as a stark reminder to members of the profession to take great care and caution not to place themselves in a position where they act when there is a conflict of interest or the risk of one occurring’.”
• “Mr Talwar, 51 and admitted in 2003, was director and owner of City firm QC Law/Queens Court Law, and held all the compliance roles at the time.”
• “According to a statement of agreed facts and outcome approved by the tribunal, the SRA explained that QC Law acted for Client A over a debt and obtained default judgment against Ms L on 8 July 2022.”
• “Four days later, Ms L instructed QC Law to apply to set aside the judgment, becoming Client B.”
• “As required by the conflicts policy Mr Talwar had only approved that April, a paralegal drew his attention to the conflict, but Mr Talwar went ahead and filed the application to set aside the judgment.”
• “This was accompanied by a statement from the client, drafted by Mr Talwar, which acknowledged that she had instructed the same law firm as the claimant, but that there were safeguards in place to avoid any conflicts.”
• “On the same day, Client A instructed QC Law to enforce the debt and it contacted Equivo. But eight days later, it asked Equivo to stop.”
• “Equivo declined to act on the matter on 12 August and Mr Talwar replied that, as the compliance officer, he would consider what to do next. But it was not under October that the firm ceased to act for both clients, with the paralegal having sought advice from the SRA’s ethics helpline.”
• “Soon after, Client A’s new solicitor asked why Mr Talwar did not seek her consent to act for Client B and why it took three months to inform her that it was. Mr Talwar replied to say that he had decided in mid-August to stop acting, accepted he had breached the SRA code, that he would make a self-report to the SRA. He did not, however, and the SRA was alerted six months later by Client A’s solicitor.”
• “Mr Talwar admitted he had acted with a lack of integrity and been reckless in acting when was there a conflict.”

“Atkins-led SEC Recognizes that Conflicts of Interest must be ‘Material’ in Complaint alleging Fraud and Breaches of Fiduciary Duties by Investment Adviser” —

• “SEC v. Nagler is the second enforcement action charging an investment adviser with undisclosed conflicts of interest since Chair Paul Atkins began his tenure on April 21, 2025. The Securities and Exchange Commission (SEC) announced the first of those cases, In the Matter of Transamerica Retirement Advisors, LLC (‘Transamerica’), just four days after Chair Atkins took office, on April 25, 2025.”
• “Both filings acknowledge the SEC’s obligation to allege conflicts of interest that are ‘material’ to investors in connection with alleged breaches of fiduciary duties under the Advisers Act.3 In this regard, the filings are consistent with the First Circuit’s recent decision in SEC v. Commonwealth Equity Servs., LLC, which vacated a United States District Court’s grant of summary judgment to the SEC on the basis that a jury should decide whether the conflicts at issue were ‘material.’4 “
• “Nagler also serves as a reminder for advisers to check their ‘may’ disclosures in light of developments in their business, and that the SEC’s antifraud jurisdiction extends to state-registered advisers with assets below the threshold for registering with the Commission.”
• “On June 2, 2025, the SEC filed a litigated action against David A. Nagler (‘Nagler’) and his investment advisory firm, New Line Capital, LLC (‘New Line’), alleging fraud and breaches of fiduciary duties under the Investment Advisers Act of 1940 (‘Advisers Act’).5 The complaint alleges that Nagler and New Line promised to ensure their advisory clients never paid advisory fees exceeding 2.0% of assets under management when, the SEC claims, many of their clients paid more than that amount.6 “
• “The complaint further alleges that Nagler and New Line hid material conflicts from clients by failing to disclose Nagler’s practice of charging additional fees on a discretionary basis without first obtaining client approval.7 According to the SEC, New Line’s brochures disclosed that clients ‘may’ be charged discretionary fees, but further stated that New Line would provide clients with an agreement specifically addressing any such fees.8 The SEC interpreted this as an assurance that discretionary fees would not be charged without advance client approval.9 “
• “In the SEC’s view, the failure to disclose discretionary fees – and Nagler’s financial interest in charging them – denied clients a full and fair opportunity to determine whether to continue using New Line’s advisory services.10 Importantly, given the SEC’s opportunity to frame its allegations in the context of a litigated action, the complaint explicitly alleges facts to support an allegation that the undisclosed conflict was ‘material’ instead of holding to the Enforcement Staff’s previously stated position, recently rejected in Commonwealth Equity Servs., LLC, that investment adviser conflicts are per se material.11”
• “Nagler reads as a variation on the typical ‘may’ disclosure case (in which the SEC alleges that disclosing the possibility of conduct is misleading when that conduct is actually underway) because New Line allegedly told clients not only that discretionary fees ‘may’ be charged, but that such fees would not be charged without advance notice. Arguably, the alleged promise to provide advance notice minimized the effectiveness of the disclosure that discretionary fees could be charged in the future and exacerbated the lack of disclosure when New Line actually charged those fees without notice. The SEC’s litigation release, however, emphasizes that New Line misled investors by disclosing that it ‘may’ offer hourly fee services ‘when, in fact, New Line was providing such services,’ and Transamerica, which the SEC released early in Chair Atkins’s tenure, involved the typical ‘may’ fact pattern. “
• “Together, these cases signal that an Atkins-led SEC may stay the course in bringing disclosure cases involving potential conflicts (in line with the Commission’s June 5, 2019 guidance for investment advisers)12 and provide an apt reminder that advisers should regularly review ‘may’ representations when drafting and updating disclosure documents.”
• “Nagler is noteworthy for the additional reason that it concerns a state-registered investment adviser that had de-registered with the Commission five years before the conduct at issue, in 2014.13 Just as the SEC’s antifraud jurisdiction can extend to transactions in securities that are not publicly traded or registered with the Commission, it extends to investment advisers who are not SEC-registered or do not meet the requirements for registration.”
• “Approximately six weeks into Chair Atkins’s tenure, it remains to be seen whether disclosure cases against investment advisers will be a significant part of the SEC’s Enforcement agenda, including because a new Director of Enforcement has yet to be announced, but Transamerica and Nagler provide an early indication that these cases are not among the new administration’s strongly disfavored categories of enforcement actions. “

David Hricik at Mercer Law School recently: “wrote a paper on this topic and gave a CLE and thought it would be useful to pass it along. It is here: The Ethics of When Lawyers Make Mistakes”

• “It goes through in a step-by-step way the way to approach fessing up to a mistake, as well as analyzing the different approaches that jurisdictions take to the issue.
• “For example, some view the duty as arising from the need to keep a client reasonably informed, while others view it as part of a conflict-of-interest analysis.”
• “That matters because breach of the duty depends on which source applies: if it’s to keep the client reasonably informed, it’s basically triggered by knowing the client has a malpractice claim, but if it’s a fiduciary duty that is the source, then it’s triggered by the lawyer’s interest conflicting with the client’s.”
• “…it also addressed the critical issue of talking to your carrier and addresses a couple of related cases where lawyers’ duties were triggered by other sources.”

“Motion: Gateway Church lead counsel David Middlebrook ‘must be disqualified’” —

• “Lawyers for Robert Morris, the former Gateway Church pastor who had an inappropriate relationship with a teenager decades ago, asked a Fort Worth judge to remove one of the lead attorneys representing the church in litigation over disputed financial payments.”
• “In court documents filed Friday, Morris’ attorneys want the judge hearing the case to disqualify David Middlebrook, Gateway’s longtime outside general counsel, because he previously represented Morris in several matters, including giving Morris legal advice about the issues that are at the heart of the current dispute.”
• “‘David Middlebrook represented Gateway Church and Pastor Robert Morris for years in connection with issues relating to Pastor Morris’s past relationship with Cindy Clemishire,’ lawyers for Morris stated in an 18-page motion. ‘Specifically, Pastor Morris sought, relied on, and followed Middlebrook’s legal advice in responding to CC or her lawyer in 2005, 2007 and 2011. Gateway now relies on those very same events and issues in this dispute, invoking them in an effort to evade its payment obligations to Pastor Morris.'”
• ‘Middlebrook and his law firm must be disqualified due to his violation of Rule 1.09 and to avoid the appearance of impropriety,’ Morris’ lawyers argued in Friday’s motion. ‘Finally, Middlebrook also is a central fact witness to the events leading to this dispute and is barred from continued representation by Rule 3.08(b) as well.'”
• “Oklahoma officials indicted Morris two months ago on five counts of lewd and indecent acts.”
• “Last month, Morris told Gateway leaders that the church owed him millions of dollars in promised payments and retirement benefits. Lawyers for Morris sought to have the dispute settled via arbitration. In response, Gateway lawyers filed documents earlier this month in Tarrant County District Court to stop the arbitration proceedings, arguing that Morris’ improper conduct and the criminal charges nullify any prior agreement with the former pastor.”
• “In the motion filed Friday, Morris’ attorneys point out that Middlebrook also provided legal representation to Morris on preparing estate-planning documents, helping create Morris’ nonprofit foundation and forming a living trust.”
• “‘Throughout these engagements, Pastor Morris revealed confidential information to Middlebrook in the context of a personal attorney-client relationship — one separate from the lawyers’ representation of Gateway,’ Morris’ lawyers argued.”

“Prosecutors Ask Judge to Question Charlie Javice Lawyer Over Alleged Conflict” —

• “Federal prosecutors are asking a judge to investigate whether or not an attorney for Charlie Javice, the founder of the student loan fintech start-up Frank, may have a conflict of interest, given that he represented her in a prior investigation unrelated to her pending fraud case.”
• “David Siegal of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo is not accused of wrongdoing, according to the U.S. Attorney’s Office for the Southern District of New York. But prosecutors do want the judge to bar Siegal from cross-examining witnesses or making arguments relating to matters in which he was personally involved.”
• “The case is before U.S. District Court Judge Alvin Hellerstein of the Southern District of New York. Prosecutors claim Javice willfully misled JPMorganChase into acquiring her start-up for $175 million. She has pleaded not guilty.”
• “The alleged misconduct included misuse of corporate credit cards for personal use,and use of personal emails and devices for business purposes.”
• “While Siegal at that point turned over some of Javice’s texts to Morgan investigators, prosecutors say they now know her messages contained significantly more responsive communications—including about the alleged fraud on J.P. Morgan.”
• “Prosecutors say they intend to present some of those communications at trial and claim Javice caused Siegal to convey false information as part of his representation.”
• “Siegal has agreed not to cross examine one of the investigators from Morgan, but has not agreed to ‘refrain from arguing to the jury regarding matters to which he was a witness,’ the letter reads.”
• “Though they do not seek to disqualify him, prosecutors ask Hellerstein to hold a Curcio hearing, to address any potential conflicts that may arise as a sworn or unsworn witness at trial.”

David Kluft notes: “If my former firm misleads my clients into thinking I no longer want to work with them, is that false advertising under the Lanham Act?” — 

• “A NY lawyer teamed up with a firm to start an arbitration practice. After a dispute over funding, the lawyer was fired. The firm unilaterally sent an email to the clients telling them their cases were now being handled by someone else.”
• “The lawyer sued the firm, inter alia, for false advertising in violation of the Lanham Act : creating the misleading impression that the lawyer was not willing to represent them and not tell the clients they had a choice.”
• “The Court recognized that this might be an ethics violation but held that this alone did not give rise to a Lanham Act claim. The Court dismissed because the emails were to existing clients (not commercial speech intended ‘to penetrate the relevant market’) and because the Lanham Act does not impose an affirmative duty of disclosure.”

“Calif. Ethics Panel Weighs Judge DQs In Racial Justice Cases” —

• “A California judge who previously served as a district attorney need not be recused from a case involving California Racial Justice Act claims solely because the judge previously handled cases involving elements that may be subject to discovery under the act, the state’s judicial watchdog has put forward in a draft opinion.”
• “In its latest draft opinion, shared Tuesday, the California Supreme Court Committee on Judicial Ethics Opinions, or CJEO, proposed that in instances where a judge weighs recusal for prior prosecutorial work but opts against it, the judge must ‘disclose on the record any facts reasonably relevant to the determination of disqualification.'”
• “The committee invited members of the public to provide comments on the draft opinion by July 11. All comments not marked ‘confidential’ will be posted publicly, according to guidance provided by the CJEO, and committee members will use public input to ‘help ensure that the committee considers all potential solutions, consequences, and points of view, which serves to improve the final opinion.'”
• “The draft opinion considers a judge’s recusal duties under the 2020 act, which ‘prohibit[s] the state from seeking a criminal conviction or sentence on the basis of race, ethnicity, or national origin,’ according to the legislation.”
• “Under the act, a defendant may ‘file a motion requesting disclosure of all evidence relevant to a potential violation of that prohibition that is in the possession or control of the prosecutor,’ the legislation states.”
• “The act is found to be violated if a defendant proves they were ‘convicted of a more serious offense than other defendants of other races who are similarly situated; and evidence shows the prosecution more frequently sought convictions for other people of defendant’s race, ethnicity, or national origin in that county,’ the draft opinion states.”
• “The judge who requested guidance told the committee they worked as a prosecutor from 1998 to 2010 and handled cases from the county’s gang and homicide units involving firearm enhancements.”
• “The requesting judge is now presiding over a case in which prosecutors have sought to add a firearm enhancement, and defense counsel have moved for discovery seeking all cases in the county where a firearm enhancement would expose a defendant to a life sentence, dating back to 2000.”
• “The judge reported they had not served as an administrator or policymaker in the district attorney’s office at the time, and never handled a case involving the defendant in the present matter, but reached out to determine if recusal or disclosure would be necessary, given the potential that the judge’s prior prosecutorial work would be invoked in discovery.”
• “In the draft opinion, the CJEO stated that recusal would be necessary only in an instance where, ‘if the judge’s prior prosecutorial involvement was such that a reasonable person, aware of the circumstances, could justifiably doubt the judge’s ability to remain impartial.'”
• “In making its proposed finding, the CJEO weighed its own prior opinions, including those focused on judges who previously worked as prosecutors. In this instance, the committee found, there was no ‘nexus’ tying the previous cases with the present case.”
  reasonable doubt of their impartiality.”

“Law Firms That Caved to Trump Suddenly Lose a Lot of Big Business” —

• “At least 11 large companies—including Morgan Stanley, Microsoft, and Oracle—are cutting ties with law firms that caved to President Trump’s threats of political retribution, according to The Wall Street Journal.”
• “General counsels for multiple companies told the Journal that the law firms’ willingness to cut deals with the president, rather than stand up for themselves, greatly eroded their confidence in the ability of those firms to represent them in court or in high-pressure negotiations.”
• “Massive law firms that work on lucrative contracts, like Paul, Weiss, Kirkland & Ellis, and others, struck deals with the Trump administration after he aimed six executive orders at them, removing clearances, building access, and government contracts from firms he thought were attacking him. The law firms capitulated, offering billions of pro bono work to the Trump administration, allegedly in the name of protecting their clients and their contracts.”
• “But multiple lawyers at each firm think that their leadership should’ve put up a tougher fight. One staffer told the Journal she felt ‘physically ill’ upon hearing of Paul, Weiss’s sellout to Trump. Some younger lawyers have even quit over these deals, as one associate at Simpson Thacher said in his exit email that he would not ‘sleepwalk toward authoritarianism.'”
• “The firms that decided to strike back did end up losing clients but kept some of their principles intact. Jenner & Block declared in a statement that folding to the Trump administration would require ‘compromising our ability to zealously advocate for all of our clients and capitulating to unconstitutional government coercion, which is simply not in our DNA.'”

New York Judicial Ethics Opinion 25-01: “A judge need not disqualify in matters involving the judge’s former election opponent, provided the judge can be fair and impartial” —

• “Digest: A judge need not disqualify in matters involving the judge’s former election opponent, provided the judge can be fair and impartial.”
  Rules: Judiciary Law § 14; 22 NYCRR 100.2; 100.2(A); 100.3(E)(1); Opinions 19-78; 90-136; People v. Moreno, 70 NY2d 403 (1987).”
• “Opinion: The inquiring judge was opposed during his/her recent election campaign by a practicing attorney who may appear before the judge in the future. The judge describes the campaign as uneventful, without ‘debates or any acrimonious interactions.’ The judge asks if he/she must disqualify when the former election opponent appears.”
• “A judge must always avoid even the appearance of impropriety and act to promote public confidence in the judiciary’s integrity and impartiality (see 22 NYCRR 100.2; 100.2[A]). A judge must disqualify in any proceeding where the judge’s impartiality ‘might reasonably be questioned,’ including where required by rule or law (22 NYCRR 100.3[E][1]; Judiciary Law § 14). Where disqualification is not mandatory, however, the judge is the sole arbiter of recusal, a discretionary decision within the personal conscience of the court (see People v. Moreno, 70 NY2d 403, 405 [1987]).”
• “A judge need not disqualify merely because an attorney appearing before the judge on behalf of a client is the judge’s former election opponent (see Opinions 19-78; 90-136). As we explained in Opinion 90-136:”
• “Whether the judge’s impartiality might reasonably be questioned in this case depends on the facts and circumstances, including the time elapsed, the bitterness of the campaign, and the personal quality of the campaign. This Committee is not in a position to pass on such factual issues and the judge must decide for himself or herself whether his or her impartiality might reasonably be questioned. Of course, if the judge doubts his or her ability to be impartial, the judge must disqualify himself or herself.”
• “Indeed, considering these factors, we have advised that a former opponent’s legal challenge to the judge’s nominating petition does not, by itself, mandate disqualification (see Opinion 19-78). We reasoned that the filing of litigation challenging nominating petitions is a ‘common circumstance in contested election campaigns’ that does not by itself establish a level of ‘bitterness’ mandating disqualification (id.).”
• “Here, as the judge indicates the campaign was neither controversial nor acrimonious, the judge need not disqualify in matters involving the judge’s former election opponent, provided the judge can be fair and impartial.”

“Consultation into the second exposure draft of the [Australian] Anti-Money Laundering and Counter-Terrorism Rules” —

• “The Australian Transaction Reports and Analysis Centre (AUSTRAC) has initiated consultation (Consultation) on its second exposure draft of the Anti-Money Laundering and Counter-Terrorism Financing Rules 2025 (Cth) (Draft Rules) and the AML/CTF (Class Exemptions and Other Matters) Rules 2007 (Cth) (Class Exemption Rules). These Rules, read with the amended Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (Act), will implement the most transformational changes to the anti-money laundering and counter-terrorism financing (AML/CTF) framework since the Act commenced in 2006.”
• “These changes under the Act and Rules will apply to existing reporting entities by 31 March 2026 and for new reporting entities by 1 July 2026.”
• The Draft Rules contain significant updates to the first exposure draft rules which were released for consultation in December 2024. The updates include:
  • AML/CTF policies, procedures, systems and controls to comply with AML/CTF obligations, including requiring designated entities to have financial sanctions compliance policies
  • New rules relating to groups of regulated businesses
  • Changes to the proposed customer due diligence rules
  • Correspondent banking and nested services relationships
  • The travel rule, being the requirement for information about the payer and payee to be included with telegraphic transfers, remittances, transfers of virtual assets and other value transfers
  • Cross-border movement reports and compliance reporting
  • Keep open notices and the form of these notices
  • Disclosure of AUSTRAC information to foreign counterparts”
• “In addition to the above, the exposure Draft Rules now propose:
  • Reportable details for ‘suspicious matter reports’ must be given to AUSTRAC by reporting entities under section 41 of the amended AML/CTF Act.
  • Reportable details for ‘threshold transaction reports’ must be given to AUSTRAC under section 43 of the amended AML/CTF Act.”
    Updated and modernised enrolment applications for all reporting entities.
  • “Registration application and administrative decision-making processes for ‘remittance service providers’ and ‘virtual asset service providers’.”

“Accounting firms should build AML/CTF program ‘sooner rather than later’” —

• “Ahead of the ACE25 Accounting Conference and Expo, Jessica Tsiakis, partner at Holding Redlich discusses how businesses can prepare for the upcoming AML/CTF regulations.”
• “‘The AML/CTF Act has been amended to ensure the AML/CTF regime can effectively deter, detect and disrupt money laundering and terrorism financing,’ said Tsiakis.”
  “‘There have been a number of changes to the legislation, but key for accountants are the changes to expand the regime to capture certain high-risk services provided by accountants,’ she added.”
• “There are three key objectives of the Amendment Act including expanding the AML/CTF regime to high-risk services provided by tranche two entities; modernising the regulation of digital currency, virtual assets, and payments technology; and simplifying the AML/CTF regime to better prevent and detect financial crime.”
• “‘The regime is expanded by including new definitions of what are referred to as designated services,’ she said.”
• “‘If you provide a designated service, you are regulated by the regime in respect of those services (and referred to as a ‘Reporting Entity’).'”
• “‘Professionals such as accountants, lawyers, and real estate agents are impacted by the expansion of the regime.'”
• “The updated AML/CTF obligations will come into effect on 1 July 2026 for tranche two entities, with enrollment with AUSTRAC available from 31 March 2026.”
• “This timeline provides newly regulated entities the chance to understand and prepare for the new obligations before they come into effect next year.”
• “‘Accounting firms need to ensure that they have developed an appropriate AML/CTF Program, which is in place well prior to the deadline, so that they are in a place to comply by July 2026,’ Tsiakis said.”
• “‘Accounting firms must also develop appropriate policies, procedures, systems and controls to properly manage these risks.'”
• “‘Accounting firms will need to ensure all professional services staff have a broad understanding of what is required by the regime, including how to properly identify and monitor their customers, and who within the business to alert if they notice suspicious transactions or conduct by their clients,’ she added.”
• “Tsiakis urges organisations to start the preparations sooner rather than later, stating that ‘some key challenges in complying will be ensuring that the organisation’s AML/CTF program is up and running before the new regime commences, so that any issues, such as the appropriate monitoring of transactions, or proper customer due diligence, can be ironed out prior to that time,’ she concluded.”

“9 AML compliance myths and how law firms can fix them” —

• “In the current climate, no law firm can afford complacency about AML compliance. Yet certain myths persist – misconceptions that can lull firms into a false sense of security. These myths often stem from outdated assumptions or a misunderstanding of SRA requirements.”
• “Unfortunately, reliance on such misinformation can have serious consequences. The SRA has ramped up its enforcement of rules in recent years. Firms that once flew under the radar are now finding themselves subject to audits, fines, and disciplinary action.”
• “COLPs, COFAs, law firm partners, and risk managers should take note: even well-intentioned myths can land a firm in trouble. By dispelling these myths, your firm can shift from a reactive stance to a proactive compliance culture that anticipates regulators’ expectations.”
• “1. ‘We’re too small to need all these formal AML documents.’
  • The Myth: Small firms sometimes believe that comprehensive anti-money laundering controls – like a firm-wide AML policy or risk assessment – only apply to higher risk firms or those handling large financial transactions. A two-partner high-street practice might think, ‘Money laundering won’t happen here – we know our clients, and regulators only focus on large firms.’ This myth implies that limited size or simple client bases exempt a firm from formal AML compliance.”
• 2. ‘As long as we do really thorough ID checks, we’re covered for AML.'”
  • “The Myth: Many solicitors equate ‘AML compliance’ with performing ID checks on clients at onboarding – copying passports, driver’s licenses, utility bills, etc. This myth is the belief that identity verification alone satisfies anti-money laundering due diligence. Once you’ve verified your client is who they say they are, the thinking goes, your anti-money laundering obligations are done. In reality, this is a dangerous oversimplification, based on outdated AML rules.”
• 3. ‘We can’t possibly have to check the other side’s client for sanctions.'”
  • “The Myth: Lawyers often focus AML and sanctions checks on their own client, under the assumption that you are only responsible for vetting those you directly represent. This myth holds that due diligence on opposing parties or the other side’s client is not necessary, since ‘they’re not our client.’ For example, in a transaction between A (your client) and B (opposing party), a solicitor might screen A against sanctions lists but not consider B. The misconception is that sanctions compliance is satisfied as long as you aren’t directly advising a sanctioned individual.”
• 4. ‘The SRA doesn’t really expect us to see our own employees as an AML risk.'”
  • “The Myth: This misconception assumes that anti-money laundering compliance is solely outward-facing – focused on clients and external parties – and that a law firm’s staff are implicitly trusted. Some firms might think employee due diligence isn’t a regulatory requirement, perhaps reasoning that ‘we hired qualified solicitors, we don’t need to screen or monitor them for AML issues.’ Similarly, there might be an assumption that as long as staff are hired in good faith, the firm won’t be held responsible for a ‘rogue employee’ engaging in misconduct.”
• 5. ‘If we report an AML breach, we’ll face harsh consequences.'”
  • “The Myth: Law firm leaders sometimes believe that reporting AML compliance breaches – whether to the National Crime Agency (NCA) or the SRA – is like inviting trouble. The assumption is that disclosing AML issues will inevitably lead to severe penalties or regulatory action, and therefore it’s better to quietly fix any problems internally, turn a blind eye to red flags, and hope regulators don’t notice.”
• 6. ‘The regulators are only really interested in the risk assessment for our firm. Individual matter risk assessments aren’t as important.'”
  • “The Myth: Some firms mistakenly believe that doing a one-time Practice-Wide Risk Assessment (aka Firm-Wide Risk Assessment) is sufficient, and that they do not need to conduct risk assessments for each client or matter. They might have a generic firm AML risk assessment document and assume that covers everything. The myth is essentially ignoring the requirement for matter-specific risk evaluation, perhaps due to misunderstanding the regulations or viewing it as unnecessary form-filling. “
• 7. ‘We’ve never had a regulatory inspection, so we must be a low AML risk.'”
  • “The Myth: This is a complacency-driven myth – the notion that silence implies everything is fine. Many firms have not yet been subject to an SRA AML inspection or any kind of in-depth compliance audit, but the SRA is thought to be planning around 800 per year. It’s easy to assume that since the regulator hasn’t knocked on the door, your policies and procedures must be acceptable. Some might even think the SRA only audits firms it suspects of issues, so being un-audited means you’re low-risk or off their radar.”
• 8. ‘We’ve known the client for years – they’re not a risk.'”
  • “The Myth: A common assumption in legal practices is that long-term or well-known clients pose little to no money laundering risk. Firms often think, ‘We’ve acted for this client for over a decade, we know their business inside out,’ or ‘They’re a local business owner we’ve seen grow from day one – surely there’s no risk here.’ “
• 9. ‘We onboarded this client in a low-risk area, so we don’t need to do AML checks again.'”
  • “The Myth: A frequent assumption is that if a client initially instructs the firm in a low-risk area like employment law, they pose minimal or no money laundering risk across the board. The reasoning often goes: ‘We onboarded them for straightforward redundancy advice,’ or ‘They’ve only needed us for staff contracts – there’s no complexity here.’ This myth creates a ‘passporting’ effect – where a client is allowed to access other, potentially riskier services without updated checks, just because they originally entered through a low-risk door.”

“Third DCA Affirms Disqualification of Lawyer” —

• “Florida’s Third District of Appeal upheld Miami-Dade Circuit Judge Lisa Walsh’s order disqualifying plaintiff’s attorney Tim Taylor for representing defendant Taras S. Diakiwski’s surety in a related dispute.”
• “The case originated from a 2015 lawsuit between contractor Diakiwski and the defendant, Craft Construction Co. The plaintiff claims he is entitled to $1.4 million in profits from the Boca Beach House Project, which he allegedly helped secure during his seven-month employment with Craft Construction. After a jury trial found Craft Construction liable, a separate trial will determine the amount of damages.”
• “Berkley Surety Group was the primary surety on Craft Construction’s projects. In 2023, the Boca Beach House’s owner entered into a dispute with Craft Construction and sent a ‘consideration of default’ letter to Craft Construction and its surety, Berkley.”
• “According to the defendants, after Berkley and Craft Construction received the letter, they began meeting to strategize a response and those meetings were conducted under a joint representation agreement. However, Taylor of Taylor Corwin & Van Cleaf accepted representation of Berkley, and the situation escalated when he appeared at a Zoom meeting with Craft Construction’s principal, who became irate.”
• “Taylor abruptly left the meeting and later withdrew as Berkley’s counsel.”
• “Craft Construction, in filing a motion to disqualify plaintiff’s counsel because in the case regarding the $1.4 million disgorgement, alleged that Taylor violated the Florida Rules of Professional Conduct.”
• “According to the order, the evidentiary hearings on the motion showed that Craft Construction’s lawyers acted as Berkley’s lawyers through a joint representation agreement and attorney-client privileged information was shared between Craft Construction, Craft Construction’s lawyers and its Berkley.”
• “Furthermore, Walsh pointed out how the joint representation of Berkley and Craft Construction occurred on a matter related to the case.”
• “‘It is an inescapable inference that confidential information openly shared for months between CCC, its lawyers and Berkley was relayed to Taylor during his brief stint as Berkeley’s lawyer,’ Walsh, referring to Craft Construction, ruled, and in doing so, granted the attorney’s disqualification.”
• “On Wednesday, the Third DCA affirmed the ruling.”
• “‘We are pleased that the appellate court has affirmed the trial court’s well-reasoned disqualification Order, which was factually necessary and legally required to do justice and uphold the Florida Rules of Professional Conduct,’ said Frank Murray, with Stumphauzer Kolaya Nadler & Sloman, who represents the defendant. ‘We look forward to continuing our pursuit of justice in this case.'”

“Judge Rejects DQ Of Smith Gambrell In Defamation Suit” —

• “A New York federal judge denied a former Major Lindsey & Africa recruiter’s bid to disqualify Smith Gambrell from representing Major Lindsey in the employee’s $75 million federal defamation suit, saying the request wasn’t ripe for consideration yet.”
• “In a memorandum opinion and order signed Monday, U.S. District Court Judge Gregory H. Woods of the Southern District of New York declined Sharon Mahn’s request to disqualify Smith Gambrell & Russell LLP from representing her onetime employer in the suit she filed in November under the so-called witness-advocate rule. Judge Woods did so without prejudice, saying in the opinion that Mahn’s bid for disqualification on the grounds that attorneys from the firm would have to testify in the case was made too early.”
• “‘Plaintiff’s motion for disqualification is, at a minimum, premature. The witness-advocate rule only requires disqualification of an attorney if the movant establishes that the attorney’s testimony is necessary to trial and is substantially likely to be prejudicial to their client,’ Judge Woods said. ‘Because plaintiff has not carried her burden of demonstrating that testimony from defendants’ counsel would prejudice defendants’ case, plaintiff’s motion to disqualify defendants’ counsel is denied.'”
• “Mahn filed the motion to disqualify in January, arguing that three attorneys from Smith Gambrell were key witnesses to help determine liability. Mahn told the court that the attorneys ‘literally lied’ in an underlying action and would therefore be needed to testify as to the impetus for the alleged misrepresentations.”
• “Bad blood between Mahn and the recruitment firm goes back at least to 2009, court records show, when Major Lindsey fired Mahn. The recruiter later sued over allegations that Mahn exchanged trade secret information with firm competitors for monetary kickbacks. That suit was dropped to enter arbitration, which resulted in a $2.9 million arbitral award for Major Lindsey.”
• “But, Judge Woods said it was not yet appropriate to disqualify the firm’s attorneys from representing Major Lindsey. To do so under the witness-advocate rule, one would have to show that they would have to testify and in doing so they were likely to harm the defendant’s case, and Mahn hadn’t shown that yet, the opinion said.”
• “‘At this early stage in the case, there is little, if any, evidence on the record to suggest that testimony from defendants’ counsel would be materially inconsistent with defendants’ case at trial,’ he said. Because Mahn hadn’t yet shown that the attorneys would need to provide testimony likely to hurt their client, Judge Woods refused her request to disqualify the firm while leaving the issue open for later consideration, his opinion said.”

“North Carolina Man Challenges Judge’s Decision for Undisclosed Conflicts of Interest” —

• “The Wake County Superior Court will hear arguments Friday and decide if an order from one of its judges should be set aside because he did not disclose his conflicts of interest.”
  Plaintiff T. Craig Travis is asking the court to consider setting aside Special Superior Court Judge Hoyt G. Tessener’s April order dismissing his defamation suit.”
• “Travis claimed Tessener did not tell the court or either party of his professional association with politicians U.S. Rep. Tim Moore and state Sen. Phil Berger Sr. Travis alleged that Tessener could not be neutral because of this professional relationship, as both men have had longstanding political influence in North Carolina and were heavily associated with one of the defendant political organizations, GOPAC.”
• “Moore, the former speaker of the state’s House of Representatives, is now a representative for North Carolina’s 14th District in the U.S. House of Representatives, and Berger has been president pro tempore of the North Carolina Senate since 2011 and is the father of another defendant.””

“Fla. Panel Affirms Atty Conflict DQ In Construction Dispute” —

• “In a one-word opinion, Florida’s Third District Court of Appeal affirmed a trial court’s decision to disqualify a plaintiff’s attorney in a long-running construction ownership dispute after finding he briefly represented the defendant’s surety company in a related matter.”
• “A three-judge panel on Wednesday upheld a February 2024 disqualification order handed down by the state’s Eleventh Judicial Circuit in Miami-Dade County. The lower court found that Timothy Taylor’s role as representative for Craft Construction Company LLC’s surety company, Berkley Surety, represented an irreconcilable conflict that must lead to his removal as plaintiffs counsel for his client, Taras S. Diakiwski, in the business dispute.”
• “In its order to disqualify, the trial court noted a ‘long-standing relationship’ between Taylor and Diakiwski and the ‘great expense and inconvenience’ the plaintiff would face due to the disqualification, but found it was necessary given Taylor’s access to privileged information about Craft Construction.”
• “Represented by Taylor, Diakiwski sued Craft Construction and its founder, Barry Craft, in December 2015 alleging breach of contract and other violations, and seeking disgorgement of alleged profits he said he was owed through their partnership.”
• “Given that the surety company holds eight years of confidential Craft Construction information, the Craft parties argued, Taylor must be disqualified.”
• “In response, Diakiwski argued that the Craft parties had not shown what privileged information, if any, Berkley had provided to Taylor about Craft Construction that could be used in the matter. Diakiwski pointed out that Craft itself had never been Taylor’s client, and no attorney-client relationship existed.”
• “Craft, in turn, argued that due to Taylor’s conflict of interest, it was not necessary for the court to find proof that privileged information was shared with the lawyer.”
  “The trial court found that the Boca project matter for which Taylor represented Berkley was substantially related to Diakiwski’s case against the Craft parties, which the court referred to as ‘CCC.'”
• “‘CCC disputes plaintiff’s allegation of the profitability of the Boca project,’ the trial court said in its disqualification order. ‘In this case, plaintiff seeks to disgorge millions of dollars allegedly realized as CCC’s purported profits from the Boca project.'”
• “The court further found that alleged mismanagement of the Boca project was directly at issue in Diakiwski’s case, because the contractor had alleged that the Craft parties were in over their heads without him and unable to take on such a large project. Information about Craft Construction’s value and financial exposure were also key elements of Diakiwski’s case, the court further ruled.”
• “The court stated that while Taylor ‘did not appear to consider the consequences in his representation of Mr. Diakiwski in this case related to the Boca project where the interests are clearly adverse,’ it was not his intent, but the outcome, that the court must weigh, later noting: ‘There is no document that can simply be excluded from trial. This court cannot instruct Mr. Taylor to unknow what he has learned.'”

“Skadden’s New Pro Bono Case Runs Counter to Trump on Immigration” —

• “Skadden, after cutting a deal with President Donald Trump to take on causes he supports, is moving in the opposite direction by helping an immigrant try to avoid removal from the US.”
• “Skadden lawyers are representing a 38-year-old woman from Mexico who sued US Citizenship and Immigration Services on May 23 for denying her a visa for crime victims that would allow her to stay in the country. Monserrat Belen Arreola was denied the visa in 2023 during President Joe Biden’s administration, though Trump has stepped up efforts to remove undocumented immigrants from the US.”
• “The involvement of Skadden, Arps, Slate, Meagher & Flom in the case is noteworthy in two ways: The law firm is taking on a pro bono effort that counters a Trump goal, and it is partnering with a group that top law firms have been avoiding during the president’s second term.”
• “The group, National Immigrant Justice Center, has been struggling to find major law firms to take its cases, Lisa Koop, the group’s national director of legal services, wrote in a court filing in a separate case last month.”
• “Several of the group’s usual partner firms ‘have suspended acceptance of new immigration matters due to messaging from the White House about pro bono involvement in immigration matters,’ Koop wrote.”

“OpenAI slams court order to save all ChatGPT logs, including deleted chats” —

• “OpenAI is now fighting a court order to preserve all ChatGPT user logs—including deleted chats and sensitive chats logged through its API business offering—after news organizations suing over copyright claims accused the AI company of destroying evidence.”
• “Before OpenAI had an opportunity to respond to those unfounded accusations, the court ordered OpenAI to ‘preserve and segregate all output log data that would otherwise be deleted on a going forward basis until further order of the Court (in essence, the output log data that OpenAI has been destroying),’ OpenAI explained in a court filing demanding oral arguments in a bid to block the controversial order.
• “‘As a result, OpenAI is forced to jettison its commitment to allow users to control when and how their ChatGPT conversation data is used, and whether it is retained,'” OpenAI argued.
• Meanwhile, there is no evidence beyond speculation yet supporting claims that ‘OpenAI had intentionally deleted data,’ OpenAI alleged. And supposedly there is not “a single piece of evidence supporting” claims that copyright-infringing ChatGPT users are more likely to delete their chats.
• “‘OpenAI did not ‘destroy’ any data, and certainly did not delete any data in response to litigation events,’ OpenAI argued. ‘The Order appears to have incorrectly assumed the contrary.'”
• “For OpenAI, risks of breaching its own privacy agreements could not only ‘damage’ relationships with users but could also risk putting the company in breach of contracts and global privacy regulations.
• “Millions of people use ChatGPT daily for a range of purposes, OpenAI noted, ‘ranging from the mundane to profoundly personal.'”
• “And for business users connecting to OpenAI’s API, the stakes may be even higher, as their logs may contain their companies’ most confidential data, including trade secrets and privileged business information.”
• “Users who found out about the preservation order panicked, OpenAI noted.”
• “One tech worker on LinkedIn suggested the order created ‘a serious breach of contract for every company that uses OpenAI,’ while privacy advocates on X warned, ‘every single AI service ‘powered by’ OpenAI should be concerned.'”
• “Also on LinkedIn, a consultant rushed to warn clients to be ‘extra careful’ sharing sensitive data ‘with ChatGPT or through OpenAI’s API for now,’ warning, ‘your outputs could eventually be read by others, even if you opted out of training data sharing or used ‘temporary chat’!”

“Jumio, FaceTec liveness IP legal tussle accelerates with new motion” —

• “There is new sauce on the ongoing legal beef between Jumio and FaceTec over a patent for liveness detection technology.”
• “Having already had Jumio’s original legal counsel, Perkins Coie LLP, disqualified, FaceTec filed a motion to have its replacement disqualified, too.”
• “But Jumio is arguing to a California court that there’s no reason to disqualify law firm Morrison & Foerster LLP, because they really didn’t have much to do with Perkins Coie.”
• “Perkins was disqualified earlier in the year for having previously worked with and represented FaceTec in matters ‘substantially related’ to the litigation. In effect, FaceTec says the firm communicated confidential information about its biometric technology to Jumio; specifically, patents covering FaceTec’s flagship biometric liveness detection product, ZoOm. It now says that Morrison & Foerster LLP, which had some overlap with Perkins, should not be able to access documents prepared by Perkins, and that it should also be disqualified, to boot.”
• “Jumio disagrees. ‘FaceTec’s motion depends on the fundamentally incorrect assertion that the disqualification of one firm raises an ‘irrebuttable presumption’ that its co-counsel must be disqualified,’ says Jumio’s motion to dismiss the request. ‘But courts in this district have repeatedly held that the disqualification of one firm does not automatically compel the disqualification of co-counsel, particularly where, as here, co-counsel had no contact with any lawyer at the disqualified firm who possessed the adversary’s confidential information.'”
• “Furthermore, ‘Morrison has been representing Jumio in disputes with FaceTec relating to the same technology at issue here for four-and-a-half years.'”

David Kluft notes: “Can I force a judge to recuse from my cases by sending her an insulting private letter?”

• “A NY judge received a private letter from a lawyer accusing the judge of personal animosity towards the lawyer and threatening to file a public recusal motion unless the judge privately ‘agreed’ to recuse.”
• “The Committee on Judicial Ethics committee opined that the judge under no circumstances could privately “agree” to recuse, and doesn’t have to recuse at all unless in her discretion she doesn’t think she can be fair and impartial. The judge need not but may report the attorney to the Attorney Grievance Committee.”
• Text of the full opinion here.

“Lima Accuses Foley Hoag Of Conflict In $200M Award Case” —

• “The Peruvian city of Lima has urged a D.C. federal court to vacate its confirmation of about $200 million in arbitral awards favoring a highway contractor, saying the municipality’s former counsel at Foley Hoag LLP concealed a conflict of interest.”
• “The Metropolitan Municipality of Lima argued in a Wednesday memorandum that it had relied on Foley Hoag for years to protect its interests in multiple arbitrations and annulment proceedings against highway contractor Rutas de Lima SAC related to a major toll road concession in the city.”
• “But the capital city of Peru discovered only after losses in arbitration and before the court that Foley Hoag also represented affiliates of Brookfield Asset Management Inc., the parent company of Brookfield Infrastructure Partners, the majority Rutas stakeholder, according to the municipality.”
• “‘This conflict was deemed important enough that Foley confidentially disclosed this conflict to the Republic of Peru while soliciting work in a separate arbitration over the concession contract — while trying to minimize it as only a ‘potential’ conflict — but never informed MML of the conflict, in violation of its professional ethical and contractual obligations to MML,’ the Metropolitan Municipality of Lima said.”
• “The alleged conflict tainted Foley’s representation of Lima, with devastating results, according to the municipality.”
• “‘MML lost two Foley-led arbitration proceedings resulting in adverse awards of approximately $200 million,’ Lima asserted in its 50-page memorandum.”
• “As an example of the undisclosed conflict, the memorandum claims that Foley didn’t seek a pause in arbitration proceedings pending resolution of Peruvian criminal investigations over alleged bribery tied to the concession contract. Nor did Foley adequately prepare a key witness on corruption claims related to a Brazilian court’s 2016 sentencing of Odebrecht SA’s CEO, Marcelo Odebrecht, to 19 years in prison, Lima’s memorandum said.”
• “Lima’s Wednesday memorandum asks U.S. District Judge Ana C. Reyes to vacate judgment under Federal Rule of Civil Procedure 60(b), which governs relief of a party from a final judgment or order. Judge Reyes issued a decision in March 2024 enforcing the arbitral awards made to Rutas de Lima, now worth approximately $200 million.”
• “‘Relief under Rule 60(b) is warranted,’ the memorandum argues. ‘MML was deprived of meaningful representation because Foley, burdened with an undisclosed conflict of interest, undermined MML’s defenses. Foley’s acts, omissions and conflicts, taken together, resulted in the entry and confirmation of adverse awards.'”

In the UK: “The solicitors’ duty to advise on their own negligence” —

• “In limited circumstances solicitors have a duty to advise their client that they may have been negligent. Allegations of breach of that duty normally arise in the context of claims which are brought after the normal six-year limitation period, and after three years from the date of knowledge. One may think that such claims would be rare, but in my experience they are not that unusual. There are, though, limited reported cases on the issue, and the recent case of Evans v Hughes Fowler Carruthers [2025] EWHC 481 (Ch) is therefore of some interest.”
• “Evans v Hughes Fowler Carruthers was a successful appeal by the claimant on an application to strike out her claim. Ms Evans instructed the defendant (‘HFC’) and Mr Howard QC in her ancillary relief proceedings which were before Mostyn J. HFC also acted for Lady Mostyn in her divorce from Mostyn J. In April 2012, when his judgment in Ms Evans’ case was in draft, it was alleged that HFC and Mr Howard QC had emails as a result of acting for Lady Mostyn in which the Judge had made disparaging comments about HFC and Mr Howard QC. This gave rise to an obvious conflict, and HFC and Mr Howard QC could not continue to act. Ms Evans instructed Farrers and new Leading Counsel, and a successful challenge was made to set aside Mostyn J’s judgment. This enabled HFC and Mr Howard QC to act for Ms Evans again, and there was a further trial before a different judge and a judgment in May 2013, with consequential matters continuing until 2018.”
• “There were two categories of negligence alleged. The first was that in 2011 and 2012 Ms Evans was not sufficiently advised of the risks of continuing her action before Mostyn J, and in particular she was not told that there was a special arrangement approved by the President of the Family Division that cases involving HFC would, if the clients desired it, be automatically transferred from Mostyn J to another judge. If the allegation was correct, and Ms Evans could prove that she would have sought a different judge, then the costs of the first trial were wasted and would be recoverable in damages.”
• “However, those allegations were statute barred, as the claim was brought in 2021. The Judge below who had struck out the claim held (and this was not appealed) that Ms Evans had actual knowledge by July 2012 that HFC had not advised her to have her case moved to another Judge, and thus she could not rely on section 14A of the Limitation Act 1980. That section does not, of course, require knowledge that the impugned act or omission was negligent.”
• “The second category of negligence was necessary to circumvent this limitation defence. Ms Evans alleged that she was not told that she might bring a claim against HFC for their earlier negligence in 2011.”
• “On appeal, Adam Johnston followed Bacon J.’s formulation in Cutlers Holdings and concluded that Ms Evans had a real prospect of showing that HFC knew or ought to have known that there was a significant risk that their earlier conduct was negligent. He rejected the point that had impressed the judge below that that the breach was not flagged up by Farrer & Co, Mr Howard QC, or the SRA, as there may have been reasons for that, such as the limitation on the scope of Farrers’ retainer.”
• “Why does there have to be actual or ostensible knowledge by the solicitor that there was a significant risk, rather than any risk, that their earlier advice was negligent, and what does this mean? Adam Johnson J concluded at [43] that a fanciful or spurious risk was not enough to trigger the duty, following the conclusion in Cutlers that the risk had to be substantial, without expressly explaining why.”
• “One reason may be that this duty arises only in a relatively exceptional case. Neuberger J held in Gold that it would, otherwise the provisions of the Limitation Act would be evaded in many cases in an artificial way, and that it would give rise to some sort of implied general retainer. Bacon J in Cutler made a parallel with a solicitor having no duty to advise the client of a risk of litigation where the risk was spurious or fanciful.”
• “It makes sense that spurious or fanciful risks should not give rise to any duty. If substantial merely means not spurious or fanciful, which it would appear it does from the reasoning in Cutlers and Evans, then there is no real difficulty with this test. Solicitors’ duties should not be over onerous, and a client needs to know what is really material. Perhaps most significantly, if the risk is spurious or fanciful, or not substantial, the clients will normally have to incur expense in instructing new solicitors.”
• “I would add one point. For the same reasons, the duty should only be imposed if the risk of causation being established was substantial, as well as the negligence. Suppose a solicitor gives negligent advice that the client’s claim has limited prospects of success because he fails to take into account a point of law; the client then comes back six months later for more advice, perhaps because there are new potentially relevant facts, and the solicitor gives the correct advice, including on the point of law. Unless the delay was over the expiry of a limitation period, no loss would normally have been caused by it. The solicitor should have no duty to advise the client on his earlier negligence. Even if he did, it would be causally irrelevant.”